China’s Stocks Rise on Prospect of Measures to Boost Economy

By Bloomberg News -
Aug 15, 2011

China’s stocks rose, driving the
benchmark index to its biggest gain in a month, on speculation
the government will introduce measures to boost economic growth
after new lending dropped and money supply growth slowed.

Huaxia Bank Co. jumped the most in 10 months after Samsung
Securities said China may ease lending to small companies and
rural areas. Ping An Insurance (Group) Co., China’s second-
biggest insurer, climbed 3.2 percent after rival PICC Property
and Casualty Co.’s first-half profit almost doubled. Haitong
Food Group Co. led solar stocks higher as Shenyin & Wanguo
Securities Co. said the industry will grow “rapidly” after the
nation set benchmark prices for solar power.

“With some data indicating a slowdown, policies may be
fine-tuned in the second half to allow faster growth,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management &
Consulting Co. “This will be positive for stocks.”

The Shanghai Composite Index, which tracks the bigger of
China’s stock exchanges, climbed 33.60 points, or 1.3 percent,
to 2,626.77 at the 3 p.m. close, its biggest gain since July 13.
It dropped 1.3 percent last week, a fourth week of declines,
amid concern debt crises in Europe and the U.S. will hurt global
economic growth. The CSI 300 Index (SHSZ300) rose 1.5 percent to 2,917.88.

The Shanghai Composite has slid 6.5 percent this year as
the central bank raised interest rates five times and ordered
lenders to set aside more cash as deposit reserves 12 times
since the start of 2010 to contain inflation that quickened to
the fastest pace in three years last month. The gauge is valued
at 12 times estimated earnings, compared with a record low of
11.9 times for the multiple set in January 2006.

Samsung Securities forecast “selective easing” for
Chinese small- and medium-sized enterprises and rural lending in
the second half of the year after data showed new bank loans,
money supply growth and system deposits trailing estimates.

New lending was 492.6 billion yuan ($77.1 billion) last
month, the People’s Bank of China said on its website on Aug. 12
after the market closed. That compared with the 550 billion yuan
median estimate in a Bloomberg News survey of 21 economists and
633.9 billion yuan in June. M2, the broadest measure of money
supply, rose 14.7 percent after a 15.9 percent gain in June,
according to the central bank.

‘Past the Worst’

China’s local government debt risks are controllable and
they can use their assets to generate cash, an unidentified
official from the Ministry of Finance said in a report posted on
its website.

“It’s probably because the valuation is low after the drop
last week,” Tina Sun, analyst at Shenyin & Wanguo, said by
telephone in Shanghai today. “PICC performed better. This may
have positive effects on Ping An.”

PICC, the non-life insurer whose shares are traded in Hong
Kong, said on Aug. 12 after the market closed that profit jumped
97 percent to 5.3 billion yuan in the first six months of the
year.

China’s stock market is already “past the worst period”
as the odds of policy over-tightening are declining and
investment in affordable housing will offset a slump in economic
growth, according to Citic Securities Co., the nation’s biggest
listed brokerage.

Inflation Outlook

The country started building more than 7.2 million units of
affordable housing in the first seven months of this year, 72
percent of the country’s full year target of 10 million,
according to a statement on the Ministry of Housing and Urban-
Rural Development’s website on Aug. 12.

The possibility is increasing that inflation will ease in
August and the effects of July monetary policy tightening are
working, Citic analysts led by Xi Feng at the brokerage wrote in
a note today. The Shanghai Composite may trade around 2,600
before rebounding in late September, it said. The brokerage
recommends solar, agricultural and airline stocks.

China’s domestic solar power stations may earn profits on
government-set benchmark solar power prices, Qi Qi and Zhang Teng, analysts at Shenyin & Wanguo Securities, wrote in a
report. Domestic power grid operators will pay solar developers
as much as 1.15 yuan per kilowatt-hour, the National Development
and Reform Commission said on Aug. 1.

--Zhang Shidong. Editors: Allen Wan, Shiyin Chen

To contact Bloomberg News staff for this story:
Zhang Shidong in Shanghai at +86-21-6104-3040 or
szhang5@bloomberg.net